Proposed Legislation Could Double Blackstone Tax Burden
Blackstone Group would face a much bigger tax burden under legislation senators proposed Thursday, just days before the private-equity firm's co-founders stand to earn billions in an initial public offering of stock.
The leaders of the tax-writing Senate Finance Committee introduced a bill that would tax as corporations all publicly traded partnerships that gain income from investment services -- a definition that Blackstone would fit after its precedent-setting IPO, scheduled for the week of June 25.
Across the Capitol, the Democratic chairman of the House Ways and Means Committee, Rep. Charles Rangel of New York, endorsed the plan crafted by Sen. Max Baucus, D-Mont., and Sen. Charles Grassley, R-Iowa, saying his panel would closely examine the issue.
"The nature of investment vehicles is changing right before our eyes, and the tax code must keep up with the times," Baucus said in a statement.
The bill he and Grassley proposed could double the tax burden for Blackstone and other private-equity firms that go public because corporations pay their own income taxes and their shareholders pay capital gains taxes on their investment. Investment partnerships and their partners, by contrast, pay only one level of tax, on their shares of the income generated.
"Creative new structures for investment vehicles may blur the lines for the tax treatment of income," Baucus said. "We must make the law clear and apply the law fairly, or risk the erosion of our corporate tax base.."
Baucus and Grassley sent letters to Treasury Secretary Henry Paulson and Christopher Cox, the chairman of the Securities and Exchange Commission, saying that the Blackstone IPO raises serious tax questions that must be resolved soon.
The SEC has been reviewing Blackstone's planned IPO.